Square is named after the small gadget that plugs into the bottom of the iPhone or iPod Touch – an inch-long card reader that can accept card payments through an app that works in the same way as card devices for retailers do – and Dorsey says is aimed at small businesses, vendors and everyday individuals. The card reader operates through a magnetic stripe which sends the card’s information through the downloaded application, and though Dorsey told audience members at major Internet conference LeWeb that the program is still being perfected for fraud protection, card information would only be stored on a central database and wouldn’t be transferred straight onto the payee’s mobile device. Before processing payment, users are prompted with a screen with the cardholder’s photo that asks if the identity of the person making a purchase matches the photo on file. Finally, customers would to sign for their purchase using the phone’s touch screen.

If Square is successful, it probably won’t overhaul the entire retail economic system as we know it, but it will add much needed accessibility to smaller vendors. (Just give me a minute to think about how many churros I could purchase from the Churro Lady who inhabits the subway station instead of walking by sadly and digging for change. Note to Santa: Please bring Churro Lady iPhone for Christmas.) Another plus, and an eco-friendly one at that, is the elimination of paper receipts. Instead, users would receive detailed receipts via e-mail.

For now, Square, backed by venture capital firm Khosla Ventures, is running a limited release test in selected areas, but is scheduled for a full launch on iPhones and iPods in March 2010.